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In Overture, Ford Rethinks Car Plan -- WSJ

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November 19, 2016

By Christina Rogers and John D. Stoll

One of the U.S. auto industry's best-known figures extended an olive branch to President-elect Donald Trump, saying the car maker won't move certain production to Mexico -- the latest business leader to thaw tension stemming from concerns about the incoming administration's stance on trade.

Bill Ford, the great-grandson of Henry Ford and chairman of Ford Motor Co., called Mr. Trump on Thursday to tell him the company was reversing course on a plan to eventually relocate Lincoln sport-utility production from Kentucky to a factory south of the U.S. border,the company confirmed.

The largely symbolic change of plans signals Ford's willingness to work with Mr. Trump on making U.S. manufacturing more attractive to multinational companies, even as the auto maker sticks with its $1.6 billion construction of a new small-car plant in Mexico.

Mr. Trump overplayed Ford's decision in a tweet about the conversation he posted to his Twitter account Thursday night, suggesting Ford would no longer relocate a Lincoln plant from Louisville to Mexico. The Dearborn, Mich., company only wanted to move one model to Mexico in this case, and it never intended to close the Kentucky plant or cut jobs, according to company and union officials.

Officials working on Mr. Trump's transition team didn't respond to requests for comment.

Mr. Ford's outreach reflects a broader move by business leaders to mend fences with the president-elect after a brutal campaign. Following the election, Ford Chief Executive Mark Fields sent a congratulatory letter to Mr. Trump, despite the New York businessman's repeated criticisms of the auto maker's plan to relocate Ford Focus production from Michigan to Mexico.

Other companies made similar pushes. International Business Machines Corp. CEO Ginni Rometty published an open letter to Mr. Trump this week offering support for his policies, even after the president-elect criticized IBM and other companies for moving U.S. jobs overseas.

Some of the outreach has come with a downside. Sneaker maker New Balance Athletic Inc. publicly backed the president-elect's antitrade stance, welcoming Mr. Trump's election as a reprieve from the policies of President Barack Obama. That support, however, incited a social-media backlash, with hundreds of consumers posting that they would throw out their sneakers.

Mr. Trump's complaints concerning Ford reflect broader criticism of the North American Free Trade Agreement, which some blame as the culprit for job losses in manufacturing sectors like automobiles. Mr. Trump has proposed a 35% tariff on autos and other products imported from low-cost countries such as Mexico.

Mr. Fields said earlier this week the tariffs would hurt his industry and the broader economy, but said he and the president-elect share the same objective of boosting the U.S. economy.

The tariff "would be harmful, I think, to the entire industry and the economy and therefore we want to engage in a very productive set of discussions," he said. He noted Nafta has increased the interwoven connections sharedby auto industries in the U.S., Canada and Mexico.

Many in the auto industry say untangling the trade pact would be costly and complicated because of the multilayered connections between U.S. and foreign suppliers and assembly points. The tens of thousands of parts that make up any vehicle often come from multiple producers in different countries and travel back and forth across borders several times.

More than half the parts in the Ford Focus, for instance, are made outside the U.S. and Canada, including 20% in Mexico. Ford also ships in some of the car's engines from Spain and transmissions from Germany.

Worries over Mr. Trump's Nafta stance are shared outside the auto industry. Martin Richenhagen, CEO of farm-equipment maker Agco Corp., said he is concerned about Mr. Trump's repeated support for trade protectionism.

"That would be a nightmare if we make life difficult for imports and exports," Mr. Richenhagen said.In making the Lincoln decision, Ford said it was "encouraged that President-elect Trump and the new Congress will pursue policies that will improve U.S. competitiveness and make it possible to keep production of this vehicle here in the United States."

Ford's change of plans is similar to arrangements it has been making with the United Auto Workers for decades as the union lost members amid perpetual restructuring efforts by Detroit's Big Three.

The auto maker had planned to move the Lincoln MKC, a small sport-utility sold in low volumes that shares components with the popular Ford Escape.

The factory wasn't in danger of closing or shedding jobs. Rather, Ford was moving MKC production to make room for building more Escape crossovers, the company's second-best selling model.

Still, keeping the Lincoln output in Kentucky means Ford will make future investments in tooling or other factory enhancements needed to make theMKC in the U.S., rather than reroute that capital to Mexico. And it offers reassurance for its hourly workers, about one-third of whom are estimated to have voted for Mr. Trump, according to preliminary UAW figures.

Even though Ford builds more than 10 Escapes in Kentucky for every Lincoln that rolls down the assembly line, keeping the MKC nameplate in an American factory is meaningful to the UAW, which has sided with Mr. Trump's Nafta position. Mr. Trump's ability to identify with concerns held by workers in states like Michigan, Pennsylvania and Ohio helped propel him to victory on election day in early November.

The UAW appeared reluctant to declare Ford's change in plans a victory. In a joint statement with the company, UAW officials reiterated that moving Lincoln output would have allowed for more Escape production but the company "has since re-evaluated that plan based on changing business conditions."

Ford Escape sales have slumped in recent months and the once-booming U.S. auto market is cooling off, with analysts saying industry sales have already peaked.

For the union, retaining production of even the lowest-volume of cars is a priority because it provides a hedge if the market shifts away from one of the other products UAW workers assemble. This is an argument UAW officials have repeatedly made as Ford and other auto makers, including Fiat Chrysler Automobiles and General Motors Co., sink deeper investments into Mexico for the production of vehicles, including less-profitable small cars.

Write to Christina Rogers at christina.rogers@wsj.com and John D. Stoll at john.stoll@wsj.com